Bad debts fell in the quarter, a pointer to strengthening
corporate and consumer health as the Indian economy shows signs
of revival, although loan growth remained at about half the
rates of recent years.

Indian banks were mostly insulated from the direct impact
of the credit crisis, but the global downturn hit Asia's
third-largest economy harder than expected and the industry's
rapid growth slowed.

"Concerns over asset quality and slowing credit growth that
were a major overhang on bank stocks are now receding as the
GDP growth outlook continues to improve," Angel Broking analyst
Vaibhav Agrawal said.

HDFC Bank reported trading gains of 1.63 billion rupees
($35.4 million), up from a small loss a year earlier, and
profits on favourable market moves are also expected to power
earnings of other lenders during the quarter, analysts said.

Top lender State Bank of India (SBI.BO), is expected to
show a jump in non-interest income -- made up of trading gains,
forex profits and fees -- rose 30 percent in the quarter,
analysts said.

No.2 ICICI Bank (ICBK.BO), which reports results on Oct 30.

At the end of September, 10-year bond yields were about 140
basis points lower than a year earlier, while the stock market
.BSESN had risen by a almost one-third.

Business confidence is returning in India, helped strong
industrial production and automobile sales numbers and listed
companies have raised around $17 billion in equity so far this
year, largely to cut debt levels.

LOAN GROWTH

The New York-listed bank (HDB.N) posted a net profit of
6.87 billion rupees ($149 million) in the September quarter,
helped by a 31 percent rise in fee-based income of 6.92 billion
rupees.

HDFC Bank's loan growth slowed to 14.8 percent in the first
six months of 2009/10 from an average of more than 30 percent
over the past four years as firms shelved expansion plans.

Its bad debts fell to 1.8 percent of gross loans at the end
of September from 2.1 percent three months earlier, and other
banks are also expected to gain from declining bad debts.

For the banking industry, loans grew an annual 12.6 percent
in late September, a far cry from the robust 25 percent
expansion averaged last year, central bank data showed.

Bankers and analysts says new loan approvals have picked up
and disbursements would rise from the December quarter.

"The banking system as a whole should grow at the 17-18
percent level. We normally target to grow at a slightly faster
rate in the system," Paresh Sukthankar, one of HDFC Bank's
executive director told reporters in a conference call.

Shares in HDFC Bank ended up 0.1 percent, underperforming
a1.2 percent rise in the main market.

The shares have risen 70.7 percent so far this year,
lagging a 78.6 percent rise for the benchmark index and a 86.9
percent rise for the sector index .BSEBANK.
($1=46.1 rupees)
(Editing by John Mair)

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Markets Weekahead

With the Nifty breaching 8,500, sentiments are again bullish. But markets have been in the 8,200-8,600 range for some time and stocks across the board do not give the required confidence except for the liquidity factor. Many frontline stocks are not participating on the upside and the core sector is in a downtrend, writes Ambareesh Baliga. Column